Report Suggests US Minimum Wage Hike Could Cost 500,000 Jobs

President Barack Obama’s recently-revived plans to raise the US federal minimum wage to US$10.10 per hour could result in about 500,000 jobs being lost by late 2016, according to an estimate by the Congressional Budget Office (CBO). The
current minimum wage in the US
is US$7.25 per hour.

According to the non-partisan CBO increasing the hourly wage could reduce US budget deficits by a small amount for several years, but then increase them slightly in later years. The positive effect would be to help lift as many as 900,000 US workers above the poverty line.

Obama initially called on Congress to raise the current rate of US$7.25 to US$9, but has since given his support to leading Senate Democrats who are pushing for a figure of $10.10. The Democratic-controlled Senate is expected to vote on a wage increase later this year, but it is unlikely to get a vote in the Republican-controlled House.

The initial response from the White House and congressional Democrats to the politically-sensitive report was that the CBO’s findings are inconsistent with the prevailing view among economists that raising the minimum wage does not adversely affect employment.

“Zero is a perfectly reasonable estimate of the impact of the minimum wage on employment,” said Council of Economic Advisers chairman Jason Furman in a conference call with reporters in response to the CBO report.

Furman and Betsey Stevenson, also a member of the Council, said that the analysis fails to take into account the impacts of raising the minimum wage on increasing productivity, reducing turnover and absenteeism and improving worker output. “I think that that understanding has moved employment effects to zero,” said Stevenson “I think CBO didn’t fully appreciate that in their review.”

The CBO examined the budget impacts of raising the US minimum hourly wage to US$9 and US$10.10. The report concluded that an increase to US$9 increase would lift 300,000 workers above the poverty line, but cost 100,000 new jobs as employers are expected to reduce workforces to make up for higher wages. At US$10.10, it would lift 900,000 workers above the poverty line, but cost 500,000 jobs.


Related reading